News Column

BIOTIME INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 12, 2014

The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our condensed consolidated financial statements for the three months ended March 31, 2014 and 2013, and highlight certain other information which, in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the quarter ended March 31, 2014 as compared to the quarter ended March 31, 2013. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements for the three months ended March 31, 2014 and 2013 and related notes included elsewhere in this Quarterly Report on Form 10-Q. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in "Item 1A. Risk Factors." Overview We are a biotechnology company focused on the emerging field of regenerative medicine. Our core technologies center on stem cells capable of becoming all of the cell types in the human body, a property called pluripotency. Products made from these "pluripotent" stem cells are being developed by us and our subsidiaries, for use in a variety of fields of medicine. Four of our subsidiaries, Asterias Biotherapeutics, Inc. ("Asterias"), Cell Cure Neurosciences, Ltd ("Cell Cure Neurosciences"), OrthoCyte Corporation ("OrthoCyte"), and ReCyte Therapeutics, Inc. ("ReCyte") are focused on developing cell based therapeutic products for diseases such as neurological disorders, cancer, age related macular degeneration, orthopedic disorders, and age-related cardiovascular disease. Our commercial strategy targets near-term opportunities such as: Renevia™ a product currently in clinical trials in Europe to facilitate cell transplantation; ReGlyde™ and Premvia™ for tendon and dermatological applications, respectively; PanC-Dx™, a family of novel blood and urine-based cancer screens; our current line of research products including PureStem® cell lines, associated ESpan™ culture media, human embryonic stem cell lines derived by our subsidiary ESI under current good manufacturing practices ("cGMP"); HyStem® hydrogel products; the LifeMap Database Suite and mobile health software products. "Regenerative medicine" refers to an emerging field of therapeutic product development that may allow all human cell and tissue types to be manufactured on an industrial scale. This new technology is made possible by the isolation of human embryonic stem ("hES") cells, and by the development of "induced pluripotent stem ("iPS") cells" which are created from regular cells of the human body using technology that allows adult cells to be "reprogrammed" into cells with pluripotency similar to hES-like cells. These pluripotent hES and iPS cells have the unique property of being able to branch out into each and every kind of cell in the human body, including the cell types that make up the brain, the blood, the heart, the lungs, the liver, and other tissues. Unlike adult-derived stem cells that have limited potential to become different cell types, pluripotent stem cells may have vast potential to supply an array of new regenerative therapeutic products, especially those targeting the large and growing markets associated with age-related degenerative disease. Unlike pharmaceuticals that require a molecular target, therapeutic strategies in regenerative medicine are generally aimed at regenerating affected cells and tissues, and therefore may have broader applicability. Regenerative medicine represents a revolution in the field of biotechnology with the promise of providing therapies for diseases previously considered incurable. The field of regenerative medicine includes a broad range of disciplines, including tissue banking, cellular therapy, gene therapy, and tissue engineering. Our commercial efforts in regenerative medicine include the development and sale of products designed for research applications in the near term as well as products designed for diagnostic and therapeutic applications in the medium and long term. We have also developed and licensed manufacturing and marketing rights to Hextend®, a physiologically balanced blood plasma volume expander used for the treatment of hypovolemia in surgery, emergency trauma treatment, and other applications. Hypovolemia is a condition caused by low blood volume, often from blood loss during surgery or from injury. Hextend® maintains circulatory system fluid volume and blood pressure and helps sustain vital organs during surgery or when a patient has sustained substantial blood loss due to an injury. Hextend® is the only blood plasma volume expander that contains lactate, multiple electrolytes, glucose, and a medically approved form of starch called hetastarch. Hextend® is sterile, so its use avoids the risk of infection. Health insurance reimbursements and HMO coverage now include the cost of Hextend® used in surgical procedures. Hextend® is manufactured and distributed in the United States by Hospira, Inc., and in South Korea by CJ Health Corporation ("CJ Health"), a subsidiary of Cheil Jedang Corp. ("CJ"), under license from us. 19 -------------------------------------------------------------------------------- The following table shows our subsidiaries, their respective principal fields of business, our percentage ownership as at March 31, 2014, and the country where their principal business is located: BioTime Subsidiary Field of Business Ownership Country Asterias Research, development and 71.6% USA Biotherapeutics, Inc. commercialization of human therapeutic products from stem cells potentially in the fields of neurology, oncology, orthopedics, and cardiology ES Cell International Stem cell products for research, 100% Singapore Pte Ltd including clinical grade cell lines produced under cGMP OncoCyte Corporation Cancer diagnostics 75.3% USA OrthoCyte Corporation Orthopedic diseases, including chronic 100% USA back pain and osteoarthritis Cell Cure Neurosciences Age-related macular degeneration 62.5% Israel Ltd. Multiple sclerosis Parkinson's disease ReCyte Therapeutics, Vascular disorders, including 94.8% USA Inc. cardiovascular-related diseases, ischemic conditions, vascular injuries Stem cell-derived endothelial and cardiovascular related progenitor cells for research, drug testing, and therapeutics BioTime Asia, Limited Stem cell products for research 81% Hong Kong LifeMap Sciences, Inc. Genetic, disease, and stem cell 73.2%



USA

databases LifeMap Sciences, Ltd. Stem cell database (1)



Israel

LifeMap Solutions, Inc. Mobile health software (1)



USA

(1) LifeMap Sciences, Ltd. and LifeMap Solutions, Inc. are wholly-owned

subsidiaries of LifeMap Sciences, Inc.

Additional Information

Espy®, HyStem®, Hextend®, PureStem®, and PentaLyte® are registered trademarks of BioTime, Inc., and Renevia™, ESpan™ and ESI BIO™ are trademarks of BioTime, Inc. ACTCellerate™ is a trademark licensed to us by Advanced Cell Technology, Inc. ReCyte™ is a trademark of ReCyte Therapeutics, Inc. PanC-Dx™ is a trademark of OncoCyte Corporation. GeneCards® is a registered trademark of Yeda Research and Development Co. Ltd.



We were incorporated in 1990 in the state of California. Our principal executive offices are located at 1301 Harbor Bay Parkway, Alameda, California 94502. Our telephone number is (510) 521-3390.

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Research and Development Expenses

The following table shows the approximate percentages of our total research and development expenses of $8,405,393 and $5,395,488 allocated to our primary research and development projects during the three months ended March 31, 2014 and 2013, respectively Three Months Ended March 31, Company Program 2014 2013 hESC-based cell therapeutic Asterias programs 30.9 % 3.6 % PureStem® hEPCs, cGMP hES cell lines, and related research BioTime and ESI products 9.8 % 12.8 % BioTime PureStem® technology 0.0 % 3.7 % Hydrogel therapeutic products BioTime and HyStem® research 15.6 % 21.6 % OncoCyte Cancer diagnostics 11.1 % 13.1 % OrthoCyte Orthopedic therapeutics 2.7 % 4.6 % ReCyte Therapeutics Cardiovascular therapeutics 5.2 % 5.8 % BioTime Hextend® 0.1 % 0.4 % Stem cell products for BioTime Asia research 0.0 % 0.2 % Cell Cure Neurosciences Age related macular degeneration (OpRegen® and OpRegen®-Plus), and neurological disease therapeutics 15.0 % 23.2 % LifeMap Sciences Database development and sales 9.3 % 11.0 % BioTime High Content Screening 0.3 % - Critical Accounting Policies Revenue recognition - We comply with SEC Staff Accounting Bulletin guidance on revenue recognition. Royalty revenues consist of product royalty payments. License fee revenues consist of fees under license agreements and are recognized when earned and reasonably estimable and also include subscription and advertising revenue from our online databases based upon respective subscription or advertising periods. We recognize revenue in the quarter in which the royalty reports are received rather than the quarter in which the sales took place. When we are entitled to receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we have no continuing performance obligations, the fees are recognized as revenues when collection is reasonably assured. When we receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we do have continuing performance obligations, the fees are deferred and amortized ratably over the performance period. If the performance period cannot be reasonably estimated, we amortize nonrefundable fees over the life of the contract until such time that the performance period can be more reasonably estimated. Milestone payments, if any, related to scientific or technical achievements are recognized in income when the milestone is accomplished if (a) substantive effort was required to achieve the milestone, (b) the amount of the milestone payment appears reasonably commensurate with the effort expended, and (c) collection of the payment is reasonably assured. Grant income and the sale of research products are recognized as revenue when earned. Revenues from the sale of research products are primarily derived from the sale of hydrogels and stem cell products. Patent costs - Costs associated with obtaining patents on products or technology developed are expensed as general and administrative expenses when incurred. This accounting is in compliance with guidance promulgated by the Financial Accounting Standards Board ("FASB") regarding goodwill and other intangible assets. Intangible assets - Intangible assets with finite useful lives are amortized over estimated useful lives and intangible assets with indefinite lives are not amortized but rather are tested at least annually for impairment. Acquired in-process research and development intangible assets are accounted depending on whether they were acquired as part of an acquisition of a business, or assets that do not constitute a business. When acquired in conjunction with acquisition of a business, these assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts and are capitalized as an asset. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. However, when acquired in conjunction with an acquisition of assets that do not constitute a business (such as Asterias' acquisition of assets from Geron), in accordance with the accounting rules in ASC 805-50, such intangible assets related to IPR&D are expensed upon acquisition. Research and development - We comply with FASB requirements governing accounting for research and development costs. Research and development costs are expensed when incurred, and consist principally of salaries, payroll taxes, consulting fees, research and laboratory fees, and license fees paid to acquire patents or licenses to use patents and other technology from third parties. 21 -------------------------------------------------------------------------------- Stock-based compensation - We have adopted accounting standards governing share-based payments, which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees, including employee stock options, based on estimated fair values. We utilize the Black-Scholes Merton option pricing model. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Although the fair value of employee stock options is determined in accordance with recent FASB guidance, changes in the subjective assumptions can materially affect the estimated value. In management's opinion, the existing valuation models may not provide an accurate measure of the fair value of employee stock options because the option-pricing model value may not be indicative of the fair value that would be established in a willing buyer/willing seller market transaction. Treasury stock - We account for BioTime common shares issued to subsidiaries for future potential working capital needs as treasury stock on the consolidated balance sheet. We have the intent and ability to register any unregistered shares to support the marketability of the shares. Impairment of long-lived assets - Our long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.



If

an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets. Deferred license and consulting fees - Deferred license and consulting fees consist of the value of warrants issued to third parties for services, and deferred license fees paid to acquire rights to use the proprietary technologies of third parties. The value of the warrants is being amortized over the lives of the warrants, and deferred license fees over the estimated useful lives of the licensed technologies or licensed research products. The estimation of the useful life any technology or product involves a significant degree of inherent uncertainty, since the outcome of research and development or the commercial life of a new product cannot be known with certainty at the time that the right to use the technology or product is acquired. We will review its amortization schedules for impairments that might occur earlier than the original expected useful lives. See also Note 5 to the condensed consolidated interim financial statements. Principles of consolidation - Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, OrthoCyte, and ESI, and the accounts of our majority owned subsidiaries, Asterias, ReCyte Therapeutics, OncoCyte, BioTime Asia, Cell Cure Neurosciences, and LifeMap Sciences. All material intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S. and with the accounting and reporting requirements of SEC Regulation S-X. 22



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Results of Operations

Comparison of Three Months Ended March 31, 2014 and 2013

Three Months Ended March 31, $ Increase/ % Increase/ 2014 2013 (Decrease) (Decrease) License fees $ 294,504$ 349,824$ (55,320 ) (15.8 )% Royalty from product sales 97,886 107,599 (9,713 ) (9.0 )% Grant income 575,659 90,326 485,333 537.3 %



Sales of research products and services 98,586 66,724

31,862 47.8 % Total revenues 1,066,635 614,473 452,162 73.6 % Cost of sales (131,914 ) (182,749 ) (50,835 ) (27.8 )% Total revenues, net 934,721 431,724 502,997 116.5 % Our license fee revenues amounted to $294,504 and $349,824 for the three months ended March 31, 2014 and 2013, respectively. License fee revenues for the three months ended March 31, 2014 and 2013 include subscription and advertising revenues of $294,504 and $313,356 from LifeMap Science's online database business primarily related to its GeneCards® database. Under our license agreements with Hospira and CJ, our licensees report sales of Hextend® and pay us the royalties due on account of such sales within 90 days after the end of each calendar quarter. We recognize such revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place. For example, royalties on sales made during the fourth quarter of 2013 were not recognized until the first quarter of fiscal year 2014. Our royalty revenues from product sales for the three months ended March 31, 2014 primarily consist of royalties $61,981 of royalties earned by Asterias from the non-exclusive license agreement with Stem Cell Technologies, Inc. which Asterias acquired as part of consideration received from Geron under the Asset Contribution Agreement. Royalty revenues on sales of Hextend® made by Hospira and CJ during the period beginning October 1, 2013 and ending December 31, 2013 were $35,905 compared with $107,599 for the three months ended March 31, 2013. This 67% decrease in royalties on sales of Hextend® is attributable to a decrease in the U.S. and in the Republic of Korea. The blood volume expander marketing continues to contract and hospitals continue to shift their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend®. The FDA also required certain new safety labeling changes for the entire class of hydroxyethyl starch products, including Hextend® which may have contributed to the decline in Hextend® sales. The labeling changes were approved by the FDA in November 2013 and include a boxed warning stating that the use of hydroxyethyl starch products, including Hextend®, increases the risk of mortality and renal injury requiring renal replacement therapy in critically ill adult patients, including patients with sepsis, and that Hextend® should not be used in critically ill adult patients, including patients with sepsis. New warning and precaution information is also required along with new information about contraindications, adverse reactions, and information about certain recent studies. See "Risk Factors." We expect royalty revenues from sales of Hextend® to continue to decline as a percentage of total revenue. Based on sales of Hextend® that occurred during the first quarter of 2014, we received royalties of $37,712 from Hospira and we have received $14,767 from CJ Health during the second quarter of 2014. Total royalties of $52,479 for the quarter decreased 49% from royalties of $103,033 received during the same period last year. These royalties will be reflected in our financial statements for the second quarter of 2014. 23 -------------------------------------------------------------------------------- Total grant revenue for the first three months in 2014 increased by approximately 537% to $575,659. Grant revenue in the first three months of 2014 included $425,770 recognized through Cell Cure Neurosciences, and $149,889 from various grants awarded to us by the National Institutes of Health (''NIH'') that will expire at various time during the current year. Despite the increase in revenues, cost of sales has declined. This is entirely attributed to the increase in grant revenues by $485,333 which is not associated with any cost of sales. Three Months Ended March 31, $ Increase/ % Increase/ 2014 2013



(Decrease) (Decrease) Research and development expenses $ (8,405,393 )$ (5,395,488 )$ 3,009,905

55.8 %



General and administrative expenses (3,667,171 ) (3,416,145 )

251,026 7.3 % Interest (expense)/income (8,384 ) 943 9,327 989.1 % Other income/(expense) 77,746 (28,056 ) 105,802 377.1 % Research and development expenses - Research and development expenses increased approximately 56% to $8,405,393 for the three months ended March 31, 2014, from $5,395,488 for the three months ended March 31, 2013. The increase is the result of the ramp-up of Asterias' operations following its acquisition of stem cell assets from Geron and us through the Asset Contribution Agreement. The principal components of the increase in research and development expenses during the three months ended March 31, 2014 is attributable to an increase of $1,288,531 in employee compensation, including stock based compensation, and related costs allocated to research and development expenses and reflects, in part, Asterias hiring additional management and scientific personnel, certain Asterias executives and other employees who had been employed on a part-time basis during the first quarter of 2013 becoming employed by Asterias on a full-time basis, an increase of $725,425 in amortization of intangible assets resulting from Asterias' acquisition of Geron's stem cell assets, an increase of $303,118 in consulting services, an increase of $302,886 in patents, licenses, and trademark related fees arising primarily from assets that Asterias acquired from Geron, an increase of $179,736 in laboratory expenses and supplies at Asterias, an increase of $132,937 in depreciation expenses allocated to research and development expenses again largely related to Asterias' asset acquisition, , and an increase of $57,204 in travel, lodging, and meals allocated to research and development expenses. These increases were offset in part by a decrease $25,476 in ESI's research and development expenses.



The following table shows the amount of our total research and development expenses allocated to our primary research and development projects during the three months ended March 31, 2014 and 2013.

Three Months Ended March 31, Company Program 2014 2013 hESC-based cell therapeutic Asterias programs $ 2,599,146$ 193,444 PureStem® hEPCs, cGMP hES cell lines, and related research BioTime and ESI products 823,451 691,611 BioTime PureStem® technology - 199,447 Hydrogel therapeutic products BioTime and HyStem® research 1,315,231 1,163,340 OncoCyte Cancer diagnostics 929,725 704,917 OrthoCyte Orthopedic therapeutics 224,716 249,954 ReCyte Therapeutics Cardiovascular therapeutics 433,408 313,615 BioTime Hextend® 12,160 21,633 Stem cell products for BioTime Asia research - 8,565 OpRegen®, OpRegen®-Plus, and neurological disease Cell Cure Neurosciences therapeutics 1,261,054 1,252,917 LifeMap Sciences Database development and sales 781,424 596,045 BioTime High Content Screening 25,078 - 24

-------------------------------------------------------------------------------- General and administrative expenses - General and administrative expenses increased to $3,667,171 for the three months ended March 31, 2014 from $3,416,145 for the three months ended March 31, 2013. The increase is the result, in part, of the ramp-up of Asterias' operations following its acquisition of stem cell assets from Geron and us through the Asset Contribution Agreement, including the hiring of additional management and administrative personnel, and certain Asterias executives and other employees who had been employed on a part-time basis during the first quarter of 2013 becoming employed by Asterias on a full-time basis. The principal components of the increase in total general and administrative costs on a consolidated basis were: $370,138 in employee compensation, including stock-based compensation, and related costs allocated to general and administrative expenses; an increase of $167,059 in general consulting expenses; an increase of $121,247 in marketing and advertisement related expenses; an increase of $87,137 in rent and facilities maintenance related expenses allocated to general and administrative expenses; an increase of $87,091 in travel, lodging and meals allocated to general and administrative expenses; an increase of $52,200 in investor and public relations expenses; and an increase of $23,226 in Cell Cure Neurosciences general and administrative expenses. These increases are in part offset by decreases of $432,054 and $165,562 in legal and accounting fees, respectively, related to transactions under the Asset Contribution Agreement, including preparing registration statements for filing with the SEC and a proxy statement for a special meeting of our shareholders, that we incurred in 2013, and a decrease of $76,522 in stock-based compensation to consultants. General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, legal and accounting costs, and other miscellaneous expenses which are allocated to general and administrative expense. Interest income/(expense) - During the three months ended March 31, 2014, we incurred $8,384 of net interest expense. During the three months ended March 31, 2013, we earned $943 of interest on cash balances held in interest bearing accounts during 2013. Other income/(expense) - Other income in 2014 consists primarily of $127,368 in gain on embedded derivatives earned by Cell Cure Neurosciences through a research contract, based in U.S. dollars, with an Israeli company, offset by a $31,582 decrease in leasehold improvement liability due to the early termination of a Cell Cure lease, $17,881 in charitable donations made, and $10,212 of foreign currency transaction expense. Other expense in 2013 consists primarily of $21,976 of foreign currency transaction loss. Income Taxes - A deferred income tax benefit of approximately $1,349,000 was recorded for the three months ended March 31, 2014, of which approximately $1,151,000 was related to federal and $198,000 was related to state taxes. A deferred income tax benefit of approximately $3,280,000 was recorded for the year ended December 31, 2013, of which approximately $2,800,000 was related to federal and $480,000 was related to state taxes. No tax benefit had been recorded through September 30, 2013 because of the net operating losses incurred and a full valuation allowance had been provided.



Liquidity and Capital Resources

At March 31, 2014, we had $6,637,834 of cash and cash equivalents on hand. Subsequent to March 31, 2014 we raised an aggregate of $6,316,834 of additional equity capital through the sale of BioTime common shares in "at-the-market" transactions through Cantor Fitzgerald & Co. ("Cantor"), as the sales agent. Offers and sales of our common shares for our account through Cantor are made under a Controlled Equity OfferingSM Sales Agreement and have been registered under the Securities Act of 1933, as amended (the "Securities Act"). The sales made through Cantor for our account after March 31, 2014 were made after an amendment to the sales agreement to provide for the issuance and sale by us of additional common shares having an aggregate offering price of up to $15,000,000. Under the sales agreement, Cantor may sell our common shares by any method permitted by law deemed to be an "at-the-market" offering as defined in Rule 415 under the Securities Act, including, but not limited to, sales made directly on NYSE MKT, on any other existing trading market for our common shares or to or through a market maker. Cantor may also sell our shares under the sales agreement by any other method permitted by law, including in privately negotiated transactions. Cantor has agreed in the sales agreement to use its commercially reasonable efforts to sell shares in accordance with our instructions (including any price, time or size limit or other customary parameters or conditions we may impose). The offering pursuant to the sales agreement will terminate upon the sale of all shares subject to the sales agreement or the earlier termination of the sales agreement as permitted by its terms. Cantor has also acted as a sales agent for certain of our subsidiaries that have sold BioTime common shares to raise capital for their operations.



The

offer and sale of those shares has also been registered under the Securities Act. We contributed the BioTime common shares to the subsidiaries in exchange for subsidiary capital stock. The proceeds of the sale of BioTime shares by our subsidiaries belong to those subsidiaries. There is no assurance that we or our subsidiaries will be able to sell additional common shares through Cantor at prices acceptable to us. See "Cash generated by financing activities" for additional information about sales of our equity securities through the Controlled Equity OfferingSM and other transactions during the quarter ended March 31, 2014. 25 -------------------------------------------------------------------------------- In April 2014, Michael D. West, who was Asterias' Vice President of Technology Integration and is our Chief Executive Officer and a member of our Board of Directors, replaced Thomas Okarma as Asterias' President and Chief Executive Officer. In addition, Richard LeBuhn, Judith Segall, and Robert W. Peabody, who is both Asterias' and BioTime's Chief Financial Officer, were appointed to the Asterias Board of Directors and two other directors left the Asterias Board. Dr. West and Mr. Peabody are working with Asterias' current management and its Board of Directors to better align Asterias' expenditures with available capital resources, and will continue to explore synergistic opportunities at Asterias and BioTime that may advance product development in a cost effective manner. For example, insight that we have gained from our PureStem® technology might help Asterias improve the purity and efficiency of production of the hES derived progenitor cells that it may use in some of its product development programs. Asterias' management is continuing to evaluate the opportunities for Asterias' stem cell assets in order to select the best paths for the advancement of its key product programs, including paths that can be followed with Asterias' current financial assets and those that would be open if Asterias were to obtain the funding it is seeking in the form of research grants, cooperative development arrangements, and new equity capital. We expect that as a result of this review of the key programs at Asterias there will be a more focused allocation of capital to programs that receive third party funding or other support, and a reduced level of current expenditures on other programs. If third party funding or support is not received, we would expect Asterias to concentrate its resources on those product development programs that provide the best opportunity for near-term progress. Asterias is seeking funding for its operations from third parties in the form of research and development grants or cooperative arrangements for the development of certain of Asterias' product candidates. Asterias has applied for a Strategic Partnership 3 Track "A" Award from the California Institute for Regenerative Medicine (CIRM) which is intended to support a Phase 1/2a clinical trial of our OPC1 product candidate in subjects with neurologically complete cervical spinal cord injury. The grant would also help support Asterias' efforts to develop a commercial process to manufacture OPC1. The purpose of the Strategic Partnership Award Initiative is to create incentives for industry to advance the development of stem cell-based therapeutics. As part of a Strategic Partnership 3 Track "A" Award, CIRM will provide up to $10,000,000 ($15,000,000 in extraordinary cases) to support an approved project. We expect that CIRM will notify applicants of the decision on their applications during the first half of 2014. Geron was granted a non-recourse loan for its thoracic spinal cord injury study of OPC1 in 2011 from CIRM, but returned the loan funds after announcing the termination of its human embryonic stem cell programs. Asterias is in the process of applying for a grant from a large United Kingdom based charitable organization to fund Phase 1/2a clinical development of our VAC2 product candidate. The proposed grant would fund both the Phase 1/2a clinical trial of VAC2 in cancer patients and the cGMP manufacturing costs of VAC2. The terms under which funding may be provided by the charitable organization are currently under discussion. Asterias anticipates that it will receive notification of whether the grant has been approved during the first half of 2014. This same charitable organization had awarded a similar grant for VAC2 to Geron but that grant was withdrawn after Geron terminated the program in November 2011. Asterias is in early-stage discussions with a United Kingdom based technology innovation center seeking their support for the development of advanced manufacturing processes for VAC2. Methods developed at the technology innovation center would be incorporated in future commercial manufacturing processes for the product. An alliance with the technology innovation center would be on a specific project basis and would require multiple approvals from different committees and boards at the center. Asterias is also in early stage discussions with an academic institution to form a collaboration to develop hES cell derived cardiomyocytes for the treatment of heart failure and acute myocardial infarction. The academic institution has received funding to develop the project through the IND filing stage. Asterias would either fund the Phase I study itself, to the extent that it has sufficient capital resources for that purpose or would seek funding for the study from a third party. In a collaboration, Asterias might contribute assistance in preparing and filing the IND, materials for use in the project such as cGMP hES cell banks, and a license of relevant patents and know-how relating to the development of hES cell-derived cardiomyocytes and hES cell-derived therapeutics generally, in exchange for which it would acquire an ownership interest in the resulting therapeutic products or in a joint venture company to be formed and co-owned with the academic institution for the purpose of developing the product. There can be no assurance that Asterias will receive any of grants that it is seeking or that Asterias will reach an agreement for support in the manufacture of VAC2 or the development of hES cell derived cardiomyocytes. Because our revenues are not presently sufficient to cover our operating expenses, we will continue to need to obtain additional equity capital or debt in order to finance our operations. The future availability and terms of equity or debt financing are uncertain. The unavailability or inadequacy of financing or revenues to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of our planned operations. Sales of additional equity securities by us or our subsidiaries could result in the dilution of the interests of present shareholders. 26



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Cash generated by operations

During the three months ended March 31, 2014, we received $1,171,914 of cash in our operations. Our sources of that cash primarily consisted of $97,886 in royalty revenues on product sales by licensees, $118,874 of research grant payments from the NIH, $658,907 in foreign research grants to Cell Cure Neurosciences, and $296,247 from the sale of research products and subscription and advertisement revenues.



Cash used in operations

During the three months ended March 31, 2014, our total research and development expenditures were $8,405,393 and our general and administrative expenditures were $3,667,171. Net loss attributable to BioTime for the three months ended March 31, 2014 amounted to $8,099,014. Net cash used in operating activities during this period amounted to $10,357,271. The difference between the net loss and net cash used in operating activities during the three months ended March 31, 2014 was primarily attributable to the amortization of $1,367,998 in intangible assets, $801,554 in stock-based compensation paid to employees, consultants and directors, and $202,122 in grant receivables. This overall difference was offset to some extent by $1,349,026 in deferred income tax benefit, $1,276,211 in accounts payable and accrued liabilities, $185,717 in other long term liabilities, $57,894 in inventory, and net loss of $1,629,017 allocable to the noncontrolling interest in our subsidiaries.



Cash flows from investing activities

During the three months ended March 31, 2014, we used $527,618 for investing activities. The primary components of this cash were approximately $231,921 used in the purchase of equipment, and a lease security deposit of $300,000 for Asterias' facilities in Fremont, California.



Cash generated by financing activities

During the three months ended March 31, 2014, we raised gross proceeds of $8,782,031 from the sale of 2,311,768 BioTime common shares at a weighted average price of $3.80 per share in the open market through our Controlled Equity OfferingSM facility with Cantor and through the sale of BioTime common shares held by our majority owned subsidiaries, LifeMap Sciences, OncoCyte, and Cell Cure Neurosciences. The proceeds of the sale of BioTime shares by our subsidiaries belong to those subsidiaries. On March 4, 2014, BioTime received $3,500,000 from the sale of 70,000 shares of a newly authorized Series A Convertible Preferred Stock ("Series A Preferred Stock"). The Series A Preferred Stock carries a cumulative annual 3% preferred dividend or $1.50 per share, in preference to BioTime common shares. Each share of Series A Preferred Stock is convertible, at the election of the holder, into BioTime common shares at a conversion price of $4.00 per share, a current conversion ratio of 12.5 common shares for each share of Series A Preferred Stock. See Note 7 to the condensed consolidated interim financial statements.



Contractual obligations

As of March 31, 2014, our contractual obligations for the next five years and thereafter were as follows: Principal Payments Due by Period Less Than After



Contractual Obligations (1) Total 1 Year 1-3 Years

4-5 Years 5 Years

Operating leases (2) $ 12,026,101$ 940,963$ 3,243,018$ 2,579,280$ 5,262,840



(1) This table does not include payments to key employees that could arise if

they were involuntary terminated or if their employment terminated

following a change in control.

(2) Includes the lease of our principal office and laboratory facilities in

Alameda, California, and leases of the offices and laboratory facilities

of our subsidiaries Asterias, ESI, LifeMap Sciences, and Cell Cure Neurosciences. 27



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Future capital needs

The completion of the acquisition of Geron's stem cell related assets by our subsidiary Asterias will continue to result in an increase in our operating expenses and losses on a consolidated basis, and will increase our need for additional capital. Asterias will use the acquired stem cell assets for the research and development of products for regenerative medicine. Asterias' research and development efforts will involve substantial expense, including but not limited to hiring additional research and management personnel, and the lease of additional research or manufacturing space that will add to our losses on a consolidated basis for the near future. Also, Asterias is now a public company. As a public company, Asterias will incur costs associated with audits of its financial statements, filing annual, quarterly, and other periodic reports with the SEC, holding annual shareholder meetings, and public relations and investor relations. These costs will be in addition to those incurred by us for similar purposes. We and our subsidiaries will need to continue to sell BioTime common shares from time to time through our sales agreements with Cantor, and our subsidiaries may also seek to raise capital through the sale of their capital stock. We and our subsidiaries will also seek funding for our research and development programs from other sources such as research grants and other arrangements with third parties. We are consolidating the sales and marketing of our research products in a new ESI BIO division. As part of this plan, we expect to shift our sales and marketing efforts from a website based effort to one that utilizes more sales personnel who may be employees or independent sales representatives. We also plan to expand our product offerings. This effort will require additional expenditures for the development of new research products and the addition of assets and personnel for sales and marketing purposes. The amount and pace of research and development work that we and our subsidiaries can do or sponsor, and our ability to commence and complete the clinical trials that are required in order for us to obtain FDA and foreign regulatory approval of products, depend upon the amount of money we and our subsidiaries have. Future research and clinical study costs are not presently determinable due to many factors, including the inherent uncertainty of these costs and the uncertainty as to timing, source, and amount of capital that will become available for our projects. The market value and the volatility of our stock price, as well as general market conditions, could impact our ability to raise capital on favorable terms, or at all. Any equity financing that we or our subsidiaries obtain may further dilute or otherwise impair the ownership interests of our current shareholders. If we and our subsidiaries fail to generate positive cash flows or fail to obtain additional capital when required, we and our subsidiaries could modify, delay or abandon some or all of our respective research and development programs.


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Source: Edgar Glimpses